In a federal court filing, WellCare said it will pursue claims against former president and chief executive Todd Farha, chief financial officer Paul Behrens and general counsel Thaddeus Bereday "for breaches of their contractual and fiduciary duties."

The corporate decision to hold its ousted officials responsible for WellCare's downfall comes as the managed care company tries to recover from ongoing state and federal investigations. The company paid $80 million in May to settle charges that it had cheated Florida's Medicaid program.

Now, according to a filing in late November in a shareholder lawsuit, WellCare said it intends to go after Farha, Behrens and Bereday based on findings of an internal investigation.

After interviewing 31 people and reviewing more than 600,000 documents, the investigator concluded that WellCare's seven non-employee directors had no knowledge of any wrongdoing. Those directors include former U.S. Sen. Bob Graham and Ruben King-Shaw, once head of Florida's Medicaid agency.

But the investigation came to a different decision regarding Farha, Bereday and Behrens, who declined to be interviewed by the company. The report did not specify the timing or details of the allegations. A spokeswoman for WellCare said, "It is not appropriate for us to comment further on matters currently under review or pending litigation."

In responses to other lawsuits claiming the men had a role in WellCare's accounting scandal, Farha, Bereday and Behrens have denied wrongdoing.

WellCare, which runs private Medicare and Medicaid plans, skyrocketed to $4 billion in sales in 2006 under Farha's leadership. But after federal officials converged on its Tampa headquarters in October 2007, the company's stock plummeted from $122 to $42 a share.

In January 2008, Farha, Behrens and Bereday were forced to resign. Under terms of their departures, Farha was divested of more than $10 million in stock awards. Behrens and Bereday also forfeited hundreds of thousands of dollars in salary they would have been paid under other circumstances.

The government's investigation focused on WellCare's fraudulent accounting practices, which allowed it to retain excess payments it received from Florida's Medicaid and Healthy Kids programs. Both plans require insurers to spend at least 80 percent of the money they receive from the state on mental health services or refund the difference. In the settlement last May, WellCare acknowledged it had kept about $40 million to which it was not entitled.

"WellCare, acting through its former officers and employees, would and did falsely and fraudulently inflate medical expenditure information," the settlement said.

In May, WellCare also paid $10 million to settle a lawsuit from the Securities and Exchange Commission. WellCare had to restate several years of income downward as a result of the fraud. In the restatement, the company said, "Former senior management set an inappropriate tone in connection with efforts to comply with the regulatory requirements."

While WellCare did not disclose its allegations against Farha, Behrens and Bereday, a complaint in another shareholder lawsuit claims that two former employees say orders to cheat came from the top. In the case of Eastwood Enterprises against WellCare and its former executives, the plaintiffs allege the director of strategic planning said Farha directed him to "push funds offshore." The former vice president of actuarial services said he resigned rather than follow Behrens' orders to falsify expense records. Both men denied the allegations.

In the past few years there have been a few high-profile cases of troubled companies going after former executives. In June, a judge in Alabama ordered former HealthSouth chief executive Richard Scrushy to pay nearly $2.9 billion for a massive accounting fraud.

Charles Elson, an expert on corporate governance who is a member of HealthSouth's board, declined to comment on Scrushy's case but said similar cases are usually settled out of court.

"Companies will sue because there may be money to recover or a point to be made," said Elson, a professor at the University of Delaware. "Whether or not they're successful, it sends a message that the board takes these kinds of actions seriously."

Kris Hundley can be reached at khundley@sptimes.com or (727)892-2996.

WellCare to go after its former top executives for misconduct 12/04/09
[Last modified: Friday, December 4, 2009 11:07pm]
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